February 1, 2015
Question 1: Back in 2006, the TIC industry was a $3.5 billion equity business (over $7 billion of real estate acquisitions). Then, TICs became virtually extinct. What happened?
An unprecedented double dip recession. Starting in 2007 and again in 2009, the US economy experienced a severe, unexpected and long-lasting double dip recession. The recession disproportionately and adversely impacted old TIC real estate investments by reducing rents, shrinking the pool of quality tenants, and generally creating a negative atmosphere (malaise) in which to retain tenants or re-tenant buildings.
The TIC structure proved problematic: the requirement for unanimous TIC owner consent made it difficult to accomplish work outs with lenders and tenants. The structural TIC issues were exacerbated by the varying degree of investor sophistication and general investor inability (or unwillingness) to contribute fresh capital to old TIC properties. Many investors did not have funds to support sorely needed capital calls and others simply refused to “put good money after bad.” Many TIC owners ran out of funds to re-tenant, repair and maintain properties to their former high standards. This happened even though most TIC properties were “adequately” funded with reserves to cover foreseeable events, but not the length and depth of the recession.
Read More »
- On February 1, 2015